High asset prices frustrate Caledonia expansion plans

New York Stock Exchange listed Caledonia Mining Corporation says its efforts to expand operations through purchase of brownfield and greenfield assets across the country have been frustrated by ridiculously high pricing of assets on the market.

This comes after the miner had announced its intention scout for further investment opportunities in Zimbabwe with the intention of expanding footprint in Zimbabwe. However, basic due diligence issues relating to proof of ownership by the vendors have also proved to be a challenge pointing to poor housekeeping on the part of vendors.

Caledonia’s primary asset is a 49 percent legal ownership in the Blanket Mine in Zimbabwe. Pursuant to the signing of an agreement announced on November 6, 2018, Caledonia intends to purchase a further 15 per cent of Blanket from one of Blanket’s indigenous shareholders.

Caledonia finance director Mark Learmonth told Business Times poor housekeeping on the part of vendors and pricing of assets have frustrated the mining company’s intentions to expand.

“We have evaluated over a dozen projects in the last 18 months or so and we have narrowed the field down to a handful which we think are attractive.

“However, it is fair to say that the main issues we face in concluding any transactions so far are vendor price expectations (which can be ridiculously high) housekeeping,” Learmonth said adding that he could not provide further information due to the constraints of non-disclosure agreements which arise the company’s listed status.

The mining firm has been looking at expansion. The miner has grown to become one of the biggest gold producers in the country and at one point it submitted a bid to take over Zimbabwe Mining Development Corporation (ZMDC) gold mines.

ZMDC has since cancelled tenders for its gold mines.

The move by Caledonia to expand is in line with President Emmerson Mnangagwa’s push to have the country’s economy work again.

In his inaugural speech, President Mnangagwa said Zimbabwe will pursue an economic revival agenda underpinned by the mining and agriculture sectors, and the latest moves by the state firm are the first steps to maximise on the country’s mineral rich deposits.

Caledonia’s gold production for the second quarter of 2019 was 12 712 ounces, an increase of 6.4 per cent on gold produced in the first quarter of 2019 of 11 948 ounces. This takes the gold haul in the first half of 2019 to 24 660 ounces.

Gross profit for the quarter was US$7 million, 37 per cent higher than in the comparable quarter in 2018 due to lower on-mine costs. Operating profit for the quarter, before foreign exchange gains, was over US$6 million, 21 per cent higher than the comparable quarter.

Net profit attributable to shareholders for the quarter increased by almost 800 percent to US$23.3 million compared to the comparable quarter due to the substantial devaluation of the newly introduced Zimbabwe currency which resulted in some cost savings and a large net foreign currency gain.

Cash generated by operating activities remains robust with net cash of approximately US$8.4 million generated in the first half of 2019